Cotton Futures Need More Carry
YOU MUST ALWAYS BE AWARE THAT THERE IS SIGNIFICANT RISK INVOLVED IN TRADING FUTURES AND/OR OPTIONS ON FUTURES AND ARE NOT SUITABLE FOR ALL INVESTORS.Cotton futures need more carrying chargesWhat usually keeps futures markets from reflecting carrying charges are strong demand and/or tight supplies. In that situation, the spot months needs to be at a premium to other months. You can see this in the price of March soybean versus May and March cotton versus May. What has kept these spot months at a premium is not so much solid export demand, but the LDP program. The LDP has afforded producers the ability to be patient and to hold on tight to selling their production to merchants. Soybeans have yet to offer a price where producer will part with their soybeans, but in cotton, prices have done that in a big way. Merchants have purchased record amounts of cotton from producers in the last rally, and they have redeemed massive amounts of cotton from the loan. Because of this, they absolutely have to have carry in the market because they are holding big inventories. Monthly carry in cotton is about 100 points. Certified cotton stocks available for deliver are relatively low, but that will not last long as merchants will add to that. The recent cotton rally has caused funds to get long March. They cannot deliver cotton, so they have to liquidate (sell March) and buy May, and because of this THERE IS A HUGE SQUEEZE PLAY in the making. Buy May cotton sell March at 110 or better. The spread might not go to 300 points, but it will widen. First notice day is Feb 22nd. Widening of the spread could be greatly augmented not only when funds have to roll out of March, but maybe a lot if any are caught (squeezed) long March as first notice day nears. It is a low risk, low margin trade for about 100 to 150 point or $500 to $750 a contract profit over the next 3 weeks.
Alan Fieldwww.iamhedged.com Check out this website.
It is a must for crop marketing needs. 800-781-0747 or 901-252-7740
posted by Alan Feild @ 10:00 AM
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